Abstract

The name econometrics is derived from the ancient Greek word combination: oikonomia = economy and metron = measure, measurement. Econometrics can, therefore, be described as the measurement of economic activity. Formally, econometrics is a social science that uses economic theory and mathematical methods as well as statistical data to quantitatively analyze economic processes and phenomena and empirically test economic theories. In the competition among different economic theoretical hypotheses, econometrics confronts these hypotheses with the reality provided by the data, so that the usefulness of an economic theoretical statement becomes tangible only if it can describe more or less the reality. An accurate description of the reality by an econometric model requires an accurate measurement of the relevant variables and their relationships.